In futures trading, you buy or sell contracts that represent the value of a particular digital currency. When you buy a contract
Later, you don't own cryptocurrencies. Instead, what you have is a contract agreeing to buy or sell a specific digital currency at a later date. Therefore, owning futures contracts does not give you any economic benefits such as voting or storage.
Futures contracts are a tool for traders to anticipate or predict the future price of specific digital currencies. Futures trading enables you to easily participate in the movements of digital currencies, whether their prices rise or even fall.
If you think the value of a particular cryptocurrency will rise, you can open a futures order in the futures market to bet on the rise. Conversely, if you think the price of a cryptocurrency will fall, you can open a futures sell order in the futures market to bet on the decline. Your profits or losses depend on the accuracy of your prediction.
The main differences between spot trading and futures trading
Trend: In spot trading, you can only make a profit if the price of, say, Bitcoin rises. If the price falls below your purchase price, you will not make any money or may even incur losses. While trading futures, even when the price of Bitcoin declines, you can still participate in the downtrend, and possibly make profits from it. Traders can use futures trading to develop sophisticated trading strategies such as forward selling, arbitrage, pair trading, etc. In addition, futures contracts can be used to avoid downside risks and protect the portfolio from sharp price fluctuations.
Rise: To buy 1 BTC in the spot market, it usually requires thousands to tens of thousands of dollars (depending on the actual market price). However, in the bond futures market, you can open BTC positions with a small amount of margin. This can only be achieved using leverage. The higher the leverage you set, the less margin you need to invest in a particular position, because leverage increases capital efficiency.
Conversely, spot trading does not support leverage. Let's say you only have 5,000 USDT, you can only buy 5,000 USDT worth of Bitcoin.
Liquidity: In general, the liquidity of futures markets is several or even hundreds of times greater than that of spot markets. Liquidity also varies greatly between different cryptocurrencies. In a well-liquid market, the risks in trading are usually lower. Traders can trade more efficiently because they can always find counterparties that match their offers, and there will be less price decline. This avoids buying or selling at prices that deviate or differ from your expectations due to insufficient liquidity.
